A varied array of data overnight starting with the U.K. inflation data for October:
Forecast Actual
CPI (MoM) +0.3% +0.5%
CPI (YoY) +1.9% +2.1%
CPI Core (YoY) +1.7% +1.5%
RPI (MoM) +0.4% +0.4%
RPI (YoY) +4.2% +4.2%
RPI Excl Mtge (YoY) +3.0% +3.1% Clearly the CPI above forecast will leave a bitter taste in the BOE’s mouths especially with retail prices still banging on the upper side. It certainly justifies the decision not to cut rates at last week’s policy meeting and with further increases likely over the coming few months there seems little chance we will see a rate cut this year. For the Euro-zone: Forecast Actual
Euro-zone Industrial Production (MoM) - 0.4% -0.7%
Euro-zone Industrial Production (YoY) +4.5% +3.5%
German ZEW Survey: Economic Sentiment - 20.0 - 32.5
German ZEW Survey: Current Situation + 67.0 +70.0
Euro-zone ZEW Survey: Economic Sentiment - 20.0 - 30.0
French CPI (MoM) +0.2% +0.2%
French CPI (YoY) +2.0% +2.0%
Italian GDP (QoQ) +0.4% +0.4%
Italian GDP (YoY) +2.0% +1.9% The inflation numbers are within forecast but do highlight why the ECB stick with their hawkish stance and the numbers don’t suggest any softening of that line. As always the question is more “when” and not “if” the ECB hikes. However, the manufacturing and ZEW surveys paint a less inspiring environment with the German economic sentiment crashing quite dramatically to -32.5 which clearly dragged down the Euro-zone figure as well. The current situation remains healthy – slightly above forecast but clearly the confidence going forward is very low. The ZEW commented in their statement that the negative impact has come from the credit crisis and is expected to continue as investors continue to anticipate a stronger slowdown in the U.S. economy which will make life harder for exports. The weakness in the Dollar strengthens the negativity. Indeed, the sharp decline has brought the index to levels below a 1 standard deviation band around the average which last occurred in 2001 and caused a larger crash in the manufacturing PMI to 42.0. The same impact need not necessarily occur but with mounting negativity there is a risk that it could feed upon itself. Finally over in the States the only number of any interest was the September Pending Home Sales which surprised to the upside by rising +0.2% over the month when forecasts had been for a decline of -2.5%. Obviously a small sigh of relief was no doubt breathed but this was from such a low base after two months of excessive losses that it really doesn’t make any dent in the trend. With the winter on its way the chances of any recovery are just about zero. However, for now it was a modestly decent number in the circumstances. Yesterday saw the expected reversal of the Dollar’s recovery around the weekend. The immediacy of the emotion that was driving prices one way last week has begun to dissipate but fear remains. The fact that Europe is slowing at a faster pace than had been expected is a slight dampener on excessive Dollar bearish sentiment which had moved into the extreme knee-jerk phase last week. This type of reaction is very common at cyclic turns. While the SNB cannot see any chance that the Dollar will see much strength in the near term, what we should soon begin to see is a higher degree of volatility. There is just two weeks left in November and only one or two weeks of normal trading can be expected in December before liquidity dries up over the Xmas period. We can’t forget U.S. Thanksgiving next week also. Unless there is some additional dramatic news for the market to generate further knee-jerk reactions the coming weeks are likely to prove more volatile but also with more two-way trading. We cannot forget that the ECB will remain with a tightening bias while the Fed has gently indicated that they see monetary policy as currently balanced. This is suggesting that interest rates are likely to remain unchanged unless some new factor enters the market. In the short term there may be just a little more room on the Dollar’s upside against the Europeans but has greater risk on the downside against the Yen for one last push lower to the 108.30-40 area. More later when the analysis is complete. The following economic releases are due today from Asia: Australia Q3 Wage Cost Index (QoQ) +1.0%
Q3 Wage Cost Index (YoY) +4.2%
November Westpac Consumer Confidence | 
